Board effectiveness survey

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Methodology — WhatWhoHowDo™

The Board Benchmarking survey methodology is based on our unique WhatWhoHowDo Framework designed by
a world leader in corporate governance and board effectiveness. The WhatWhoHowDo Framework was created
after many years of interviewing hundreds of directors around the globe and internally observing dozens
of boards in action.

The WhatWhoHowDo Framework can be shown diagrammatically as follows:

Each element of the WhatWhoHowDo Framework is set out below:

“What” — Board structure and role clarity

The “What” describes the scope of the board’s responsibilities.

Most importantly, the “What” sets out the “road-map” or “rule-book” for proper corporate governance. This
component of the framework considers the extent of the documentation of roles and responsibilities of an
organisation’s board of directors, committees of the board and individual directors. The appropriateness
of the size and structure of the board and its committees, the clarity of performance expectations for
individual directors and the extent to which the board is independent of management (including having
independence of mind and judgment) are all dealt with under “What”.

“Who” — Board composition

The “Who” describes who is on the board.

This section focuses on the competencies and skills of existing (as well as prospective) directors, including
their effectiveness. It also considers how new directors are recruited to the board, their induction, their
opportunities for continuing education and development, important qualities that directors should possess,
whether director performance is regularly assessed, how under-performance is dealt with and the adequacy of
director remuneration. Best practice includes, for example, a “gap” analysis of competencies and skills that
are required for a board given the organisation’s strategic needs, what the existing competencies and skills
of current directors are, and how the recruitment of new directors takes this “gap” in competencies and skills
into account.

“How” — Board process

The “How” describes how the board carries out its main tasks.

How a board comes together to make decisions is a critical determinant of the quality of its decision-making and
ultimately its effectiveness. How boards act — or fail to act — is a complex interaction and the result of many
factors including:

the leadership skills of the chair of the board

individual director behaviours and director dynamics

the nature of the board’s relationship with management

how board meetings are operated

the appropriateness of information received and internal reporting

In short, these items are the “hard” and “soft” elements of “board process” or “How” the board
makes decisions. Because so many of these factor manifest themselves “inside the boardroom,” or
at least “behind closed doors,” little is known of the effectiveness of boards at these processes,
nor is much of this information disclosed publicly. Nonetheless, research suggests board process
lies at the heart of whether a board will be “effective” or not at carrying out its tasks. If the
“How” is carried out well, this will increase the effectiveness of the board as it carries out its
main tasks.

“How” — a) Board and committee leadership

The leadership skills of the chair of the board are central to an effective board process. Effective
boards are invariably led by a strong, diligent chair, a chair that builds healthy board dynamics and
who is trusted by the other directors. This section also deals with questions such as the following:
Does the chair conduct effective meetings? Is the effectiveness of the chair assessed regularly? What
is the basis for selecting the chair of the board and chairs of committees? How does a board deal with
ineffective leadership? The answers to such questions will determine the effectiveness of the board’s
leadership.

“How” — b) Board behaviours and dynamics

Directors may possess the appropriate business experience and competencies but if they do not “behave”
in an appropriate manner around the board table, they will fail to contribute effectively to a healthy
board dynamic. Collectively, a Board should have a balance of behavioural styles or its dynamic (and
ultimately its decision-making) will be deficient. Identifying, assessing and modifying individual director
behaviours are very difficult tasks for most boards to achieve. This component of the framework accordingly
considers the extent to which the board works constructively as a team, creates organisational value
through high quality decision-making and whether irectors listen to and respect one another. It also
addresses how undesirable director behaviours are dealt with and whether any organisational topics are
off limits.

“How” — c) Board and management relationships

Effective decision-making also results from the quality and nature of the relationship between the board
(including board committees) and management. The CEO typically has the power to influence this relationship,
including the power to determine how information is filtered, the exposure of direct reports to the board,
and, most importantly, how open management is with the board. Trust and constructive dialogue between mmanagement
and the board and the committees of the board will impact on the success of the board and management
relationships. This section also addresses whether bad news is promptly communicated to the board and the
appropriateness of the procedures for contact between directors and management between board meetings.

“How” — d) Agendas, meetings and minutes

The appropriateness of the board’s agendas, meetings and minutes are also key indicators of performance. How well
a board plans its annual agenda of meeting topics, including how it allocates its time among strategic,
performance and compliance matters is essential for a proper functioning board. This section also considers
whether management inappropriately influences agendas or meetings and how well significant issues are followed
up by the board. Whether management’s involvement in board meetings contributes to the board’s productivity is
also addressed in this section.

“How” — e) Information and internal reporting

Information is the “life-blood” of an effective board. This section considers whether a board receives information
in the quality, quantity and format that it deems appropriate. In order to understand the key drivers of the organisation,
the board must ask effective questions of management to fulfill its oversight and strategic roles and make the necessary
decisions. How boards receive information and internal reports from committees of the board and management will impact a
board’s ability to apply the skills, knowledge and experience of directors to oversee management and the organisation. The
board needs to be well informed on material matters and given the appropriate information to function effectively.

“Do” — Board tasks

The “Do” describes what the board does in terms of their main tasks. The board’s most important tasks include the following:

playing a significant role in direction, strategy and planning;

oversight of organisational performance and the selection, assessment, remuneration and succession planning of the CEO
and management team; and

oversight of risk management, organisational assurance and external reporting (including the integrity and quality of
financial reporting and internal controls).

If a board carries out its most important tasks well, it can significantly enhance the organisation’s overall performance.
If it is unable to meet these fundamental responsibilities, the organisation is likely to suffer as a result.

“Do” — a) Direction, strategy and planning

The board can make a measurable impact on the long term performance of an organisation by making significant contributions
to the organisation’s direction, strategy and planning. This section deals with the extent to which the board and management
take time to develop a shared commitment to the organisation’s direction and strategy, including whether the board has a shared
understanding of what actions are required to execute the organisation’s strategic plan. Once business plans and annual budgets
are aligned to strategic intent, executive remuneration should be tied to the achievement of both medium and long term goals.
This section also addresses the extent to which the CEO welcomes constructive input into the organisation’s strategy, whether
the board fosters a culture of innovation across the organisation and whether the organisation is sufficiently prepared for a
crisis.

“Do” — b) CEO, organisational performance and compensation

This section covers one of the most important jobs of the board: hiring, compensating, reviewing and replacing the CEO. It
addresses the extent to which the board plays an active role in overseeing the growth of the organisation’s leadership talent
pool and whether the board has ensured that there is an appropriate succession plan in place for the CEO and other senior
management. In addition, whether the organisation’s incentive program motivates the desired organisational behaviours is a
further factor assessed in this section.

“Do” — c) Risk, Assurance and external communication

An organisation’s ability to adopt a culture consistent with its agreed risk appetite is a foundation stone for in the
sustainability of high performance. This section also considers whether the board exercises appropriate oversight to ensure
the organisation has an effective internal control system in place, an effective compliance framework and indeed whether the
board helps establish the right “tone at the top”. The extent to which the board ensures that all stakeholder contacts are
handled well and its use of the organisation’s annual general meeting as a centre piece for communications with the shareholders
are also addressed.